Seaport: Issues and Challenges in India

A White paper
on
Seaport: Challenges and Issues
in India

by

CII Institute of Logistics

N. Chandrasekaran S. Mohan Kumar

Senior Consultant & Head Research Associate
CII Institute of Logistics CII Institute of Logistics
CII Institute of Logistics
 Seaport: Challenges and Issues in India

About CII Institute of Logistics

CII has been playing a pioneering role in facilitating the adoption of best practices

in Logistics and SCM and developing Logistics in India. The Institute of

Logistics has been established with a vision to make the Indian Industry to be

often referred in global business for its best practices in SCM and Logistics and

for the quality of Logisticians and SCM professionals in the next five years.

The strategic initiatives of the Institute of Logistics center around five primary

activities.

Training

Consulting

Education and Information

Research

Events

CII INSTITUTE OF LOGISTICS

CONFEDERATION OF INDIAN INDUSTRY
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Tel: 044-52 444 555, Fax: 044-52 444 510
www.ciilogistics.com / www.ciionline.org
Email: csekar@ciionline.org, mohan.kumar@ciionline.org

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 Seaport: Challenges and Issues in India

Content

EXECUTIVE SUMMARY ......................................................................................4

INTRODUCTION ..................................................................................................5

WORLD MARITIME TRADE ................................................................................5

INDIA MARITIME MARKET .................................................................................6

INDIAN PORTS CURRENT SCENARIO..............................................................6

Infrastructure Bottleneck................................................................................................. 7

Logistics Bottleneck ........................................................................................................ 11

Technology Bottleneck.................................................................................................... 12

Regulation Bottleneck..................................................................................................... 12

Labor issues ..................................................................................................................... 13

RECOMMENDATIONS ......................................................................................15

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 Seaport: Challenges and Issues in India

Executive Summary

Maritime Transport, a key constituent to the trade and economic growth in India,
contributes 90% in terms of volume and 77% in terms of value. The current trend is to
outsource to India and China, and China upgraded their ports at greater extend to cater
this outsourcing potential.

In the Indian scenario, though there is an impressive growth of container traffic of over
15 per cent per annum over the last five years, this is far lesser compared with
International trends. Though the turnover time and pre berthing time came down further
from 3.7 days in 2002 03 to 3.5 days in 2003 04, and from 6.9 hours in 2002 03 to 5
hours in 2003 04 respectively, Indian ports are still a long way to go to reach the world
standard. India plays a marginal role in the export of maritime transport services with a
less than one per cent share of world market. While the capacity has increased, the
infrastructure needed to support has not increased. For example, JNPCT and NSICT are
facing capacity constraints corresponding to their volume growth.

The growth in traffic has exceeded the growth in capacity leading to congestion and low
productivity. Low-level productivity and inefficient process and procedures make the
Indian Maritime sector unattractive in the eyes of global players. There are various
bottlenecks for the Indian Ports in the form of Insufficient Infrastructure, Poor Logistics,
Primitive Technology, Cumbersome Regulation Systems and Plaguing Labor Issues.

The trade growth in India is inevitable as it is ranked one among the top five
manufacturing outsourcing destinations in the world. Unless the infrastructure, facilities
and processes in Indian ports are upgraded to the world standard, it would be a huge loss
of trade potential for them. Realizing this and acting faster is the need of the hour. Both
public and private sector participation should be encouraged to modernize the Indian
Infrastructure. Single window clearance, multi modal operations, and an efficient custom
process would increase the competitiveness of Indian ports in the global maritime market.

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 Seaport: Challenges and Issues in India

Introduction
Maritime Transport is a key constituent to the trade and economic growth in India as it
shares 90% of trade in terms of volume and 77% in terms of value. India has 12 major
and 184 minor / intermediate ports spread across the vast coastline of 7517km. In 2003
04, cargo handled by major ports registered a 9.9 per cent increase, from 9.0 per cent in
2002-03. As of today, the 12 major ports handle about 76 per cent of the traffic. The
container traffic has registered an impressive growth of 15 per cent over the last five
years.

Though the turnover time and pre berthing time came down further from 3.7 days in
2002 03 to 3.5 days in 2003 04, and from 6.9 hours in 2002 03 to 5 hours in 2003
04 respectively, Indian ports still a long way to go to reach the world standard. The
Freight cost rose by 15 per cent to 115 per cent per tonne across different ports in India in
the last few years. The lack of modernization, infrastructure not in line with volume
growth, inadequate productivity and equipment, inefficient government procedures and
regulations, and lack of hinterland connectivity constituent to the poor performance of
Indian ports. Consequently, Indian ports are less attractive than their counterpart in
China, who has upgraded its ports and grown at an amazing speed.

In the light of this, this article would analyze the bottlenecks that Indian ports are facing
in the competitive, globalized and deregulated market environment, where the speed and
economic of scale are the key mantras to sustain.

World Maritime Trade

As per UN Report on Maritime Transport in 2003, World Maritime trade increased by 0.8
per cent in 2002, reaching 5.88 billion tons of loaded goods. Asia had by far the largest
share of the world tonnage of seaborne loaded goods 37 percent followed by Europe
and America with 25.4 percent and 21.2 percent respectively. Africa and Oceania were
representing only 8.8 per cent and 7.6 per cent respectively of the total.

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 Seaport: Challenges and Issues in India

On contrary, the preliminary information available for 2002 indicates that world seaborne
container trade increased by 8.4 per cent to 75.8 million TEU. Container flows in the
dominant leg, Asia to North America, increased by more than 8 per cent in 2002, while in
the opposite westbound direction, flows increased by about 1 per cent, resulting in a
widening imbalance of container flows. This trend clearly reflects the impact of
outsourcing to Asia, especially to China and India, and it is expected to grow further in
the future. The Chinese ports have upgraded their facilities, procedures / processes and
equipments to cope up with the volume growth from Chinese market to US and Europe.

India Maritime Market

The 12 Indian major ports handled 344.5 MT cargo volume in 2002 - 03 with a increase
of 9.9 per cent from 9.0 per cent in 2002 03. As of today these major ports handle about
76 per cent of total traffic. The dry and liquid bulk cargo constituted about 80 per cent of
total traffic and the remaining by the general cargo including containers. There has been
an impressive growth of container traffic of over 15 per cent per annum over the last five
years. However, it is still a long way to go when compare with the largest international
ports. For example, JNPT handled only 2 million TEUs when compare with other
international ports like Hong Kong (19.1 million TEUs) and Antwerp (4.8 million TEUs).
Though Inland water transport has a great potential in the future in India, today it
accounts only 0.15 percent. There has been a significant growth of traffic handled by
minor ports in India when compare to traffic of 108 MT in 2003 04 from 27.83 million
tonnes in 1996 97.

Indian Ports current scenario

The Indian economy has made significant strides over the last two decades with annual
average growth measured by GDP rising from a low level of 2.9 per cent in the seventies
to 5.8 per cent in the nineties. Though the real GDP in 2003-04 is estimated to have
grown by 8.2 per cent, India plays a marginal role in the export of maritime transport

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 Seaport: Challenges and Issues in India

services with a less than one per cent share of world market. Indian Maritime sector is
less attractive due to its low level productivity and inefficient process and procedures
when compare to its counterparts like China and Sri Lanka.

Infrastructure Bottleneck
Indian ports are plug with the lack of capacity and low productivity. The high turnover
time and pre berthing time, and freight costs make Indian ports less competitive. Though
the turnover time and pre berthing time came down further from 3.7 days in 2002 03
to 3.5 days in 2003 04, and from 6.9 hours in 2002 03 to 5 hours in 2003 04
respectively, Indian ports still a long way to go to reach the world standard. The turn over
time in Singapore and Hong Kong ports is 6 to 7 hours .In a recent paper, Limao and
Venables (2000, henceforth LV) show that poor infrastructure accounts for more than
40% of estimated transport cost. They also show that raising transport costs by 10
percent reduces trade volume by more than 20 percent. The shipping cost could be
reduced up to 12 percent by improving the port efficiency. For instance, increasing
turnover efficiency and customs process time would greatly reduce freight costs, and
increase customer service.
Performance Indicators for Indian Ports
Name of the Port Avg. pre- berthing time (hrs) Average turnaround time
2002-03 2003-04 2002-03 2003-04
Haldia 3.60 3.43 3.02 2.84
Mumbai 3.60 4.64 5.06 4.07
Jawaharlal Nehru 11.75 8.24 2.28 1.85
Chennai 4.30 0.91 3.70 4.85
Cochin 1.67 4.02 2.19 2.22
Vizag 3.12 1.18 3.72 3.33
Kandla 16.80 11.06 5.94 5.06
Mormugao 19.92 26.71 1.94 4.47
Paradip 10.32 5.14 3.37 3.43
New Mangalore 4.41 3.07 2.37 2.35
Tuticorin 7.20 1.60 3.59 2.52
Ennore 1.56 1.66 2.22 2.11
Source: Ministry of Shipping &
http://indiabudget.nic.in Table 1

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 Seaport: Challenges and Issues in India

The main fundamental flaw behind this story is that the port development projects, in the
past, have not taken into consideration the growth in traffic and, as a consequences, the
growth in traffic for exceeded the growth in capacity leading to congestion and low
productivity (Ref. Table 1).

Total Capacity and Traffic Handled at Major Ports

(In Million Tonnes)

Year Capacity Traffic Handled Capacity

Utilization (%)
1995 96 181.2 215.3 119
1996 - 97 219.5 227.3 104
1998 99 239.5 251.7 105
1999 - 00 254.4 272.0 107
2000 -01 291.0 281.0 91
Source: Regional Seminar on
Liberalization of Maritime Transport Services
under WTO GATS Table 2

This is the same case as well at some of the leading container terminals in India. For
instance, the Jawaharlal Nehru Port (JNP), once a jewel in Indias crown, is now
constrained with low productivity and inefficiency due to inadequate infrastructure to
handle a huge volume growth, which has gone up to 16 percent over the previous year,
and frequent labor strikes. It is a highly sensitive issue given the fact that JNPT shares
more than 50 percent of Indian container market.

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 Seaport: Challenges and Issues in India

Source: http://www.aisaship.com/
USA-ITA_Seminars/bmoore.pdf Figure 1

The above figure clearly reflects the capacity constraints that JNPCT and NSICT are
facing corresponding to their volume growth. In 2002 03, JNPT handled roughly 2
million TEUs.
Performance Indicators for Container Terminals in India
JNPT CHENNAI Kandla Kolkata
Avg. Pre berthing 8.44 0.68 1.98 0.08
time on port
account
(Hours)
Average turnaround 1.62 1.36 2.18 3.03
(Days)
Source: Ministry of Shipping &
http://indiabudget.nic.in Table 3

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 Seaport: Challenges and Issues in India

The exponential growth of container traffic and economic of scale led many shipping
companies to opt for larger vessels. Many shipping companies already have placed orders
for 7000 to 9000 vessels. Asian Countries like China, Malaysia and Srilanka have
invested heavily on port and port related intermodal infrastructure capable of
accommodation the latest transport and cargo transfer technology as well as the largest
vessel size for their trade. This has increased the efficiency and performances of their
ports at a greater extent, which has resulted in Indian ports being served mainly by small
vessels rather than by larger and more cost efficient vessels, which adds costs and delays
to customers.
Infrastructure and Productivity Benchmark
Port Infrastructure Benchmark
JNPT Kandla Jbel Ali Laem Singapore Busan
(JNPCT Cha
&
Bang
NSICT)
Container 2 1 6 5 3 6
Terminals
No. of 5 4 10 5 20 31
Berths
Draft (m) 12 10 12 14 17 15
Volume 2,000 126 4,194 1,10 16,800 9,436
000 TEUs (Roughly
in 03)
Max.Size of 50,000 30,000 80,000 50,000 150,000 50,000
Vessels
(DWT)
Source: Secondary Data
Table 4

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 Seaport: Challenges and Issues in India

Port Productivity Benchmark with China Port

JNPT Chennai Shanghai NSICT
Avg.
Moves/ 17* 25* 28** 22*

hour
1
Source
Table 5
Only around 15 per cent of the total container traffic for India is shipped directly to
Indian ports (source: CRIER, Working Paper No 76). For the rest, Indian ports are largely
served by feeder vessels from the transshipment hubs of Colombo, Singapore and Dubai.
The feedering of the countrys export and import traffic through transshipment ports not
only results in a delay of at least three days bur involves an additional shipping cost of
US$ 175 to US$ 200 per TEU. The ultimate burden of these costs is borne by the Indian
consumer and exporters.

Logistics Bottleneck
The port productivity and efficiency also depend upon the quality and reliability of
road and rail connectivity, and adequate storage and handling facilities. The lack
of expressway connectivity between major ports as well as industrial clusters,
and high fuel cost make hinterland transportation inefficient and slow. Also the
container freight stations and business need to be organized efficiently through
good management practice in space utilization, adoption of technology for track
and trace, etc.

1
* Hindu News Paper on Nov 04
** UNCTAD Maritime Transport
Review Report 2003

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 Seaport: Challenges and Issues in India

Technology Bottleneck
The technology innovations and information technology have changed the way
goods being transported between international port terminals. Many international

ports like Rotterdam, Hong Kong, PSA and Antwerp have implemented end-to-
end solutions to streamline the flow of information between their trading partners.
Though all major ports in India have implemented (not fully) EDI (Electronic Data
Interchange) and online tracking systems, the information exchange amongst the
major trading / operational partners, such as customs, ports, inland terminals and
shippers involved in container trade is limited.

For example, only a few ICDs/CFSs have implemented IT and that too in limited
percentage. And the custom MIS systems are not based on EDI standards;
hence the computer interface between the ports and customs is also not
possible. Thus, an exporter has to deal with different agencies with different
formats for processing of documents and clearances. What Indian ports should
need is a single window clearance under one roof to optimize the process time
and transaction costs. A Study conducted by CII estimated that if computer to
computer communications between vessels operators, ports, shipping agencies,
custom authorities, custom brokers, freight forwarders, consignee is established
through EDI, the efficiency of Indian ports would increase by 20 percent.

Regulation Bottleneck

The custom procedures and regulations, and lengthy documentation process are
the other areas where Indian maritime sector lags the pace when compare with
its counterparts like Singapore, China, and Malaysia. At all international ports,
the modernized custom administrations have adopted a highly selective
procedure for examinations of containers and about 95 percent of containers are

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 Seaport: Challenges and Issues in India

allowed clearance without any physical examinations. Where as in India, 10

percent of the contents of each box should be checked and verified. It causes
delay, and adds a high transportation costs.

The cost of moving containers through Indian ports is much higher than other
regional ports like Bangkok, Singapore, etc. A World Bank study found that the
cash outlay of moving an import container through any major Indian port is
around US$500-520 per box when compare to US$330-350 in foreign ports of
region. For the export containers, the Indian cash outlay is US$420 compared to
US$340 at comparable foreign ports (source: CRIER, Working Paper No 76).

Document Benchmark
Activity India Singapore China Indonesia
No No No No No No No No
Documents Days Documents Days Documents Days Documents Days
Removal of 7 1 2 0 3 0 2 0
goods
from plant
Customs 3 1 1 1 1 1 1 1
Clearance
Export 5 5
Benefits
Application
Export 2 10
benefits
Verification

Source: ETIG Knowledge Forum Table 5

Labor issues
Major Indian ports are bogged with frequent labor strikes, consequently,
congestions, inefficiency and lower productivity at their respective ports. The port

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 Seaport: Challenges and Issues in India

labor federations and unions are very powerful in India. Still, the old incentive
schemes and other service conditions are followed at all major ports. For
example, in the 1950s incentive schemes were introduced wherein the worker
whose output exceeded the prescribed datum line was paid at a higher rate for
the extra output. But over the years, many ports have modernized and adopted
sophisticated cargo handling equipments but these datum lines have not been
changed yet.

For example the recent strikes (four different strikes in a month) at JNPCT
brought its operations standstill for a week. Thousands of boxes were stranded at
the terminal as well as yards. Similarly, operations at NSICT came to a naught
for almost three days, after P&O Ports turned down a demand for ex-gratia
payment by over 500 employees. Subsequently, the labour strike at JNPTs
import CFS, currently operated by the state-run Central Warehousing
Corporation (CWC), affected the landlord ports operations partially. In both
instances, the striking workers were demanding ex-gratia payment or
productivity-linked incentive, before Diwali. But the terminal operator claimed that
as per the agreement, there is no provision for an ex-gratia payment. Few
months back, the same situation happened at ChennaI Container Terminal
Limited (CCTL) as well.

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 Seaport: Challenges and Issues in India

Recommendations

Public and Private participation is the only solution for the financial
bottleneck that Indian ports are facing to modernize their facilities and
infrastructures to the world standard level. Though government
encourages the private sector participation in development and operation
of port infrastructure, the process and procedures are time consuming and
it is not in a pace with a trade growth. Hence government should
streamline the privatization processes and procedures and ensure the
level playing field among the terminal operators. Otherwise, India maritime
sector would lose its trade potential to its neighboring ports such as
Sri Lanka, China, Malaysia, etc., which already have achieved the world
standard.

Government should link all major ports and Industrial cluster places with
expressway to ensure a streamline movement of goods between different
entities. Port Authorities should introduce a single window clearance and a
single paper clearance for pre / post shipment procedures and benefits.
EDI should be implemented fully and should be integrated with other
trading partners, and should ensure 24 7 Operations and online
customs clearance.

Government should modernize the existing CFSs / ICDs Facilities and

increase its capacity to cope up with a pace of trade growth.

Various stakeholders including Government should strive to create a

congenial work environment among labor, operators, authorities and so on
and develop standard code of conduct to all ports, which would reduce the
misunderstandings between terminal operators and labor.

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 Seaport: Challenges and Issues in India

Conclusion

Indian Maritime Sector is regarded as a less competitive and attractive in the

Maritime World due to its poor productivity, inefficient process and procedures,
less chances for hub status due to inadequate drafts and away from international
sea routs, and high freight cost. However, the growth of trade, in India, is
inevitable due to its strong economic growth, globalization, and deregulations.
India is ranked one among the top five outsourcing destinations in the world as
well. India would lose this exponential trade potential to its neighboring ports,
who are competitive and efficient, unless government and port authorities speedy
up their process and procedures to upgrade ports infrastructure, facilities and
process to the world standard.

Also Indian ports should improve port service quality and intermodal
infrastructure, which can efficiently serve the containerized foreign trade from
door to door in order to make Indian ports more attractive and cost effective to its
customers.

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 Seaport: Challenges and Issues in India

References

Ximena Clark, David Dollar, and Alejandro Micco, (2001). Maritime Transport Costs
and Port Efficiency.

Arpita mukherjee, (2001). Indias trade in maritime transport services under the
gats framework, Working Paper No. 76, Indian council for research on international
economic relations, New Delhi.

Country Report, India (2002): Regional Seminar on Liberalization of Maritime

Transport Services under WTO GATS, Bangkok, Thailand.

United Nations (2003). Review of Maritime Transport, 2003, New York and Geneva.

Indian Economic Survey (2003-2004) on Ports and Infrastructure.

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